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IMF warns of no-deal Brexit risks as UK's time runs short

The International Monetary Fund renewed its warning about the risks to the UK's economic outlook if Britain leaves the European Union without a deal.

Bloomberg

[LONDON] The International Monetary Fund renewed its warning about the risks to the UK's economic outlook if Britain leaves the European Union without a deal.

The Washington-based lender held its 2019 growth forecast at 1.5 per cent, saying the fiscal stimulus announced in the Oct 29 budget would likely help offset the damping effect which Brexit fears are having on the world's fifth-biggest economy. However, "substantial uncertainty" surrounds the estimate, and a no-deal scenario could knock between five and eight percentage points off long-run GDP, according to IMF chief economist Gita Gopinath.

"As of mid-January, the shape that Brexit will take remains highly uncertain," the IMF said in its World Economic Outlook Update Monday. "This baseline projection assumes that a Brexit deal is reached in 2019 and that the UK transitions gradually to the new regime."

The forecasts were published on the eve of the World Economic Forum's annual meeting in Davos, Switzerland. UK Prime Minister Theresa May isn't attending this year as she deals with the unfolding political drama at home.

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With less than 10 weeks before the UK is due to leave the EU, time is running out for Mrs May to get a withdrawal deal through Parliament after lawmakers emphatically rejected her blueprint last week. May will present her Plan B later Monday.

If the UK falls out of the bloc with no alternate arrangements and moves straight to WTO rules, the reduction in output would be "significant," Ms Gopinath told reporters in Davos. "It is absolutely essential that this uncertainty is resolved sooner rather than later."

A chaotic departure would also threaten the global outlook, according to the IMF. Global growth is set to slow to 3.5 per cent in 2019, though it could be weaker if a no-deal Brexit or a larger-than-anticipated slowdown in China materialize, it said.

The IMF sees the UK economy expanding 1.6 per cent in 2020, little changed from the 1.5 per cent it forecast in October.